Secretary of State for Trade and Industry v Bottrill
| Jurisdiction | England & Wales |
| Judge | LORD WOOLF, MR |
| Judgment Date | 12 February 1999 |
| Neutral Citation | [1999] EWCA Civ J0212-1 |
| Judgment citation (vLex) | [1999] EWCA Civ J0212-8 |
| Docket Number | EATRF 98/013203 |
| Court | Court of Appeal (Civil Division) |
| Date | 12 February 1999 |
[1999] EWCA Civ J0212-1
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE EMPLOYMENT APPEAL TRIBUNAL
(MORISON J)
The Master of the Rolls
(Lord Woolf)
Lord Justice Peter Gibson
Lord Justice Mantell
EATRF 98/013203
MISS J EADY (Instructed by The Treasury Solicitor, London, SW1H 9JS) appeared on behalf of the Appellant
MR M BARKLEM (Instructed by Messrs Shulmans, Leeds, LS1 2EX) appeared on behalf of the Respondent
Friday 12 February 1999
This is the judgment of the Court.
There is only one issue on this appeal. It is whether a person who is a controlling shareholder of a company can also be an employee of that company for the purposes of the Employment Rights Act 1996 (" ERA"). It is an issue on which there have been conflicting previous decisions. In Buchan and Ivey v Secretary of State for Employment [1997] IRLR 80, the Employment Appeal Tribunal, in a judgment given by Mummery J, the President, decided that a controlling shareholder could not be an employee for that purpose. In Fleming v Secretary of State for Trade and Industry [1997] 1 IRLR 682, the Inner House of the Court of Session (The Lord President [Lord Rodger], Lord Kirkwood and Lord Coulsfield) did not apply Buchan and Ivey and decided that a controlling shareholder could be an employee. Whether he was an employee or not depended on all the circumstances. A similar view to that taken in the Inner House was taken by the Employment Appeal Tribunal in this case, the judgment being given by Morison J, the President.
The significance of the issue is that if the controlling shareholder is an employee, then upon any of the conditions specified in s.166(7) being satisfied (broadly speaking on insolvency), as an employee, the controlling shareholder is entitled to recover certain sums, which would otherwise be owing from the company, from the Secretary of State in accordance with the provisions of the ERA including statutory redundancy payments (s.166), unpaid wages and holiday pay and monies in lieu of notice, the basic award of compensation in respect of unfair dismissal and other payments, including protective awards, and monies due for time taken off work for trade union duties, etc. (s.184).
The facts of this case
The facts giving rise to the appeal can be summarised fairly shortly. The respondent, Peter Bottrill, became Managing Director of Magnatech UK Limited ("Magnatech") on 25 March 1994. There was one other director and two other individuals were employees. The one share of the company which was issued was held by Mr Bottrill. It was, however, intended in the future that an American group, which supplied Magnatech with all items for sale, would hold 80% of the shares in the company. A draft shareholders' agreement describing the proposed relationship between the group and Magnatech had been prepared. However, before the agreement was executed, Magnatech became insolvent. At that time Mr Bottrill was still the sole shareholder.
Mr Bottrill had signed a "contract of employment" on 15 August 1994. This was for a term of 3 years and set out his duties, his working hours, his entitlement to remuneration (which was reviewable on an annual basis and would be set at a level mutually agreed with fellow directors), holiday and sick pay. He worked the hours indicated in the contract and had no employment elsewhere. As a result of the insolvency of the company, a Receiver was appointed, Mr Bottrill became redundant and he was dismissed with effect on 19 April 1996. Certain sums were then owed to him by the company, which he was entitled to recover from the Secretary of State, if Mr Bottrill was an employee for the purposes of the ERA.
Mr Bottrill applied to the Department of Trade and Industry for a redundancy payment from the National Insurance Fund. This was rejected on the ground that he was not an employee. He applied to an Industrial Tribunal and on 13 December 1996, the Tribunal came to the conclusion that he was an employee of the company and entitled to payment from the Secretary of State. On the appeal to the Employment Appeal Tribunal, it upheld the determination of the Industrial Tribunal. The Employment Appeal Tribunal gave leave to appeal to this Court.
The Industrial Tribunal when giving its reasons for its decision, relied on its findings that Mr Bottrill's status as sole shareholder was only temporary and any control which he had of the company was only theoretical. The actual control was held by the American group. The Industrial Tribunal laid stress on the facts that Mr Bottrill had paid National Insurance Contributions and tax as if he was an employee, was entitled to sick pay, worked fixed hours and had a contract with Magnatech that was described as a contract of employment.
The relevant provisions of the ERA
Turning to the relevant provisions of the ERA:
"[S]166 Applications for payments
(1) Where an employee claims that his employer is liable to pay to him an employer's payment and either
(a) that the employer has taken all reasonable steps, other than legal proceedings, to recover the payment from the employer and the employer has refused or failed to pay it, or has paid part of it and has refused or failed to pay the balance, or
(b) that the employer is insolvent and the whole or part of the payment remains unpaid,
the employee may apply to the Secretary of State for a payment under this section.
(2) In this Part 'employer's payment', in relation to an employee, means -
(a) a redundancy payment which his employer is liable to pay to him under this Part,
[(aa) a payment which his employer is liable to make to him under an agreement to refrain from instituting or continuing proceedings for a contravention or alleged contravention of section 135 which has effect by virtue of section 203(2)(e) or (f), or]
(b) a payment which his employer is, under an agreement in respect of which an order is in force under section 157, liable to make to him on the termination of his contract of employment.
….
(4) In subsection (1)(a) 'legal proceedings'
(a) does not include any proceedings before an industrial tribunal, but
(b) includes any proceedings to enforce a decision or award of an industrial tribunal.
(5) An employer is insolvent for the purposes of subsection (1)(b) -
(a) where the employer is an individual, if (but only if) subsection (6) is satisfied, and
(b) where the employer is a company, if (but only if) subsection (7) is satisfied
…..
(7) This subsection is satisfied in the case of an employer which is a company -
(a) if a winding up order or an administration order has been made, or a resolution for voluntary winding up has been passed, with respect to the company,
(b) if a receiver or (in England and Wales only) a manager of the company's undertaking has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or
(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.
182 Employee's rights on insolvency of employer
If, on an application made to him in writing by an employee, the Secretary of State is satisfied that -
(a) the employee's employer has become insolvent,
(b) the employee's employment has been terminated, and
(c) on the appropriate date the employee was entitled to be paid the whole or part of any debt to which this Part applies,
the Secretary of State shall, subject to section 186, pay the employee out of the National Insurance Fund the amount to which, in the opinion of the Secretary of State, the employee is entitled in respect of the debt.
183 Insolvency
(1) An employer has become insolvent for the purposes of this Part -
….
(b) where the employer is a company, if (but only if) subsection (3) is satisfied.
(3) This subsection is satisfied in the case of an employer which is a company
(a) if a winding up order or an administration order has been made, or a resolution for voluntary winding up has been passed, with respect to the company,
(b) if a receiver or (in England and Wales only) a manager of the company's undertaking has been duly appointed, or (in England and Wales only) possession has been taken, by or on behalf of the holders of any debentures secured by a floating charge, of any property of the company comprised in or subject to the charge, or
(c) if a voluntary arrangement proposed in the case of the company for the purposes of Part I of the Insolvency Act 1986 has been approved under that Part of that Act.
188 Complaints to industrial tribunals
(1) A person who has applied for a payment under section 182 may present a complaint to an industrial tribunal -
(a) that the Secretary of State has failed to make any such payment…
(3) Where an industrial tribunal finds that the Secretary of State ought to make a payment under section 182, the tribunal shall -
(a) make a declaration to that effect, and
(b) declare the amount of any such payment which it finds the Secretary of State ought to make.
230 Employees, workers etc
(1) In this Act "employee" means an individual who has entered into or works under (or, where the employment has...
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